Institutional misalignment and escape-based FDI: A prospect theory lens

FDI research has predominantly focused on gain-based motivations, but increasingly other loss avoidance-based motives, such as escape, have become more prominent. However, studies of escape have been largely conceptual or do not explicitly disentangle escape from other motives. Combining a natural experiment-based research design with behavioral predictions derived from prospect theory, we attempt to advance this area of investigation. Examining 548 Latin American FDI deals, we found compelling support for escape. Using detailed data on 174 of the deals, we found further evidence that characteristics associated with speed, a potential priority in avoiding loss, were significantly related to escape-based FDI.